Groupon’s paper anniversary up in flames

Analysis: Accounting issues linger a year after IPO

SAN FRANCISCO (MarketWatch) — The traditional first-year anniversary gift is paper, and it seems like investors are marking Groupon Inc.’s IPO anniversary by taking stock certificates in the daily-deal company and lighting them on fire.

With so much trading done electronically, the likelihood that someone is holding a tangible, paper share of Groupon’s
GRPN, -1.48%
stock is about on par with thinking that the shares are soon heading to $20, the price at which they went public on Nov. 4, 2011.

“A year ago, I got calls about Groupon’s IPO and I was not bullish,” said Gene Alvarez, an analyst with Gartner Inc. “Anybody in business knows how to run a 50%-off sale. I think all of these kinds of companies are in trouble, because of the implication that building customers from a social network will lead to a mob outside their door.”

Over the last week in particular, there has been a throng of people selling their Groupon stock. A year of investor disappointment reached another bottom Friday, as Groupon shares fell by more than 8% to an all-time low of $3.68. For the week, the stock was down by almost 18%. On Monday, it had recovered only slightly, closing at $3.90 a share, and is down 85% from the where Groupon closed its first day of trading at $26.11.

Anyone who has followed Groupon is familiar with what has happened over the past year. The company, after rebuffing a reported $6 billion buyout offer from Google Inc.
GOOG, +0.05%
chose instead to forge its own path and go public.

Earlier this year, Groupon had to restate it fiscal fourth-quarter results, and there have been reports that the business is being hampered by numerous refunds on high-ticket sales. On Friday, Groupon answered a Securities and Exchange Commission inquiry about how the company accounts for things like refunds. Groupon basically said giving exact numbers to back up its refund policy isn’t material to business operations. Read more about Groupon’s response to the SEC.

While Groupon is best known for daily deals, it has taken steps to diversify. The company is pushing itself as a provider of mobile-payment technologies and other services that can help small businesses cut expenses and continue to offer Groupon deals. In addition, Groupon has bought Savored, a closely held company that provides customers discounts of up to 40% at restaurants when they make reservations at specific times.

“They’ve launched several new products, gotten into payments and are investing a lot and throwing a lot of people at various projects,” said Ed Woo, an analyst with Ascendiant Capital Markets.

But Herman Leung, who covers Groupon at Susquehanna Financial Group, said the company is going feel the hangover from its early accounting issues for some time. “It’s tough enough these days where we have to figure out what their [quarterly] numbers are going to be,” he commented. “When there is some fuzzy accounting, that hampers the trust. The SEC thing adds to that feeling.” Leung has a hold rating and $7 price target on Groupon’s stock.

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To top this off, Amazon.com Inc.
AMZN, +0.20%
reported in a regulatory filing that LivingSocial took in $372 million in revenue during the first nine months of the year. Amazon made note of this because it owns about 29% of the Groupon rival, having invested $175 million in LivingSocial in late 2010.

The Amazon report translated into LivingSocial recording revenue of $124 million during the quarter ended in September, which is 10% lower from the June period. So investors looking for another reason to hate Groupon found it, as they presume that LivingSocial’s numbers mean Groupon may have a disappointing quarter as well.

We will find out soon enough. Groupon is scheduled to report its quarterly results on Thursday. Analysts surveyed by FactSet estimate the company will see a profit of 4 cents a share on $592.4 million in sales. During the June quarter, Groupon earned 8 cents a share on $568.3 million in revenue. Any signs of growth that counter LivingSocial’s results would have to be a benefit for Groupon at this point, and could renew investors’ faith.

For the time being, Groupon’s stock is on fire, only not in a good way.

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